AT&T, Verizon dominate wireless… Is it time to regulate?

A new FCC report says that concentration in the mobile broadband/voice sector …

The government's latest annual report on the state of mobile wireless competition is out, and its conclusions are not what the wireless sector wanted to hear. Over the last half-decade, concentration in the industry has gone up—way up, in fact. The Federal Communications Commission says that the two dominant providers, AT&T and Verizon, now enjoy a 60 percent chunk of revenue and subscribers, "and continue to gain share."

Their nearest rivals, T-Mobile and Sprint, serve most of that remaining 40 percent. T-Mobile enjoyed some growth over the last two years. Sprint lost subscribers.

As a consequence, the antitrust measurement gauge that the FCC uses, the Herfindahl-Hirschman Index, has jumped by almost 700 points since the agency first began using it in 2003. That's a 32 percent increase. Some of this newer concentration is a consequence of mergers over the last few years: AT&T/Aloha, T-Mobile/Suncom, Verizon Wireless/Rural Cellular, and Verizon Wireless/Alltel.

So the wireless sector HHI is now at 2848, the agency says, which doesn't mean diddly until you know that the Department of Justice regards a market to be "highly concentrated" if, following a merger, the HHI in a given industry throttles past 1800. The FCC typically starts to eyeball the situation after a post-merger calculation of 2880.

Ask any American

We predicted that, urged on by reform groups and under new management, the FCC would produce a more critical analysis of the wireless industry than it has in the past. It wasn't a tough call, given that last year's report blandly proclaimed that there was "effective competition" in the market.

But sensing possibly hurt feelings, FCC Chair Julius Genachowski tried to make nice about the new 237-page survey's findings.

"This Report does not seek to reach an overly-simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, comprised of multiple markets," Genachowski gingerly declared in response to the data.

CTIA - The Wireless Association wasn't pleased; its lawyers obviously hit the ceiling when they got to the sentence noting that the report "provides data that can form the basis for inquiries into whether policy levers could produce superior outcomes."

CTIA believes the FCC "missed an opportunity today to truly highlight one of the few glowing examples of investment, innovation and consumer choice in the US economy."

"Ask any American," CTIA president Steve Largent continued. "Whether based on HHI, the raw number of competitors in each market, investment, handset and network innovation, price or consumer choice, the US wireless market is the envy of the world. That is why the lack of a finding is so troubling."

And furthermore: "We are very concerned... about the potential misuse of 'policy levers' that are referenced in the Report and believe that any attempt to add regulation to wireless as a result of this Report would be both misguided and harmful to consumers."

Bright lights

What kind of "policy levers" could we be talking about here? Setting aside the prospect of blunt antitrust lawsuits, the FCC has been running wireless-related inquiries for months about exclusive handset deals, the iPhone's refusal to carry Google Voice, jumbo-sized early termination fees, "bill shock," and the rates at which smaller telcos can buy network access to the big carriers.

The agency could use this report as the basis for moving these probes to the proposed rulemaking stage, something FCC Commissioner Michael Copps rather broadly hinted at in his response statement.

That 2848 HHI number "sticks out like a sore thumb," Copps warned, and flashes "a bright caution light for this Commission as we go about the business of advancing competition and consumer well-being in the Broadband Age. We are going to need an extra dose of vigilance going forward and use whatever policy levers we have available to ensure good outcomes for American consumers."

To which Copps' Republican colleague questioned whether it was ever the business of this survey, mandated by Congress since the 1990s, to get into the "policy lever" area. "This point in particular is outside the scope of our statutory mandate to produce the report, and appears to lay the foundation for more regulation," Robert M. McDowell noted.

And McDowell emphasized the document's more positive findings, among them that almost three-quarters of consumers can now pick from five or more mobile services. As for wireless broadband, the served percentage has gone from 51 to 76 percent, with almost 90 percent enjoying access to two mobile broadband carriers.

"These numbers illustrate that the vast majority of consumers have a meaningful opportunity to change providers if they cannot withstand a 'bill shock' or are unhappy with their mobile broadband experience," McDowell concluded.

"Meaningful," of course, depends on how affordable consumers find the $175 to $350 ETFs attached to various smartphone plans these days.

Extraordinarily high

Still, apropos of McDowell's point, the FCC's competition report—which is more detailed than past surveys—highlights a range of interesting and positive trends that go beyond the competition question. Among them:

Less talking: By the end of 2008, 90 percent of Americans owned a wireless device, and they used this gadget for 709 minutes a month, on average. But they talked less, "perhaps due to increased reliance on text and multimedia messaging," the FCC notes.

Text messaging is now "extraordinarily high," the report observes, with one study indicating that teenagers now send 3,146 text messages per month, equal to over ten messages for every hour they're aren't sleeping or in school (less per hour, of course if, as is typical with teens these days, they're busy texting away during class lectures).

Transition to a "data centric" market: AT&T says its network has sustained 18 times more mobile data traffic over the two-and-a-half years of its iPhone service. The data rate has jumped by a factor of four between June 2008 and June 2009. This is not surprising, since "the average iPhone user consumes twice the monthly bandwidth of the average smartphone user and five to seven times the monthly bandwidth of the average wireless voice subscriber," according to the FCC.

Lots more mobile gizmos: The big four providers unveiled almost 70 new smartphones between 2008 and 2009 over a variety of platforms (e.g., Apple iPhone, BlackBerry, Android, Palm, Windows Mobile). By December of 2009, consumers could choose from over 100,000 applications on the Apple Store and 15,000 via the Android Market. And they're choosing like crazy. The mobile and smartphone market is enjoying an upsurge in the first quarter of this year.

But this should come as little consolation to the over 900,000 rural residents whom the report says are still left out in the wireless cold, with no mobile service at all. Another 2.5 million get coverage from only one provider. Just 39 percent of rural consumers enjoy that aforementioned quintet of competitive wireless carriers in their region.

And not everybody in the wireless business thought the FCC's report was completely off base.

“While the wireless retail market remains competitive and has brought unimagined innovation and value to American consumers over the past decade," Sprint's Government Affairs Vice President Vonya B. McCann told us, the company "remains concerned that for competition to continue to flourish, changes must be made to the underlying regulatory structure which govern the USF system, switched access and special access."

Matthew Lasar
Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz. Emailmatthew.lasar@arstechnica.com//Twitter@matthewlasar

@Wonder Steve: Ahh, a world in which lying is not only OK, it can be a highly paid career. Our society is drenched in lies, and nobody seems to care. Anyone remember what happened to the PR company that produced the "Iraqi soldiers killing incubator babies" lie, that included perjured testimony in front of congress before Desert Storm?

Of course Sprint thinks something needs to be done, them and TMobile are losing!!!!On a more serious note though, these prices are getting out of hand. I am not sure what can really be done regulatory wise. If they were to split up Verizon, what would happen to the customers? Would I no longer have Verizon 3G if I went on vacation to Florida? The only way I could see dividing one of these kinds of companies would be to say "Ok, you guys are now financially separate, but you share the same network until you start rolling out new tech." In Verizon's case, let them split the 4G cities, and have the top of the chain keep Verizon, and the next in command gets the new company.

I'm starting to consider getting off a plan altogether and using my iPhone with VoIP only, just relying on WiFi. It's not ideal, and it would certainly be annoying at times, but I'm sort of warming up to the idea. Since I rarely ever actually talk on the phone, mostly all I do is text and use data (and since I'm around WiFi a lot, it's not even that much data most of the time). I can't see how I can justify paying $100 a month for doing basically the same things an iPad customer is doing for $30 a month, which, if I can get by without a phone in the car and the park and whatnot, I can do for even less than that.

Ask any American whether ... the US wireless market is the envy of the world.

Surely if you wanted to know how the rest of the world feels then you'd be better off asking the rest of the world? But then the phenomenon of American Exceptionalism is probably for a different thread...

"Ask any American," CTIA president Steve Largent continued. "Whether based on HHI, the raw number of competitors in each market, investment, handset and network innovation, price or consumer choice, the US wireless market is the envy of the world. That is why the lack of a finding is so troubling."

I can't recall the last time that I did a true LOL, but this really brought out some belly laughs from me. Preposterous statements like this make me think radical solutions, such as nationalizing the wireless networks, are required. It's clear that even a federally run infrastructure would be more efficient, higher quality, and lower in price. These jokers have been trying to squeeze out as much short term profit for far too long. The wireless infrastructure is too important to leave to such small-minded simpletons. We need visionaries that can think decades out, and plan to leave the US as true technological leaders.

Short of nationalization, maybe somebody like Google will come along and do a competent job. But I can't imagine anyone else that has the amount of capital to make something like that happen. Such a sad state of affairs.

"price or consumer choice, the US wireless market is the envy of the world. That is why the lack of a finding is so troubling"

Sometimes I wonder how these people can say this with a straight face.

Yeah, I wonder the same thing. "US wireless market is the envy of the world". Hah. Yeah, right! That dude is so arrogant . I doubt he has even been to another country or seen how their cellular markets work. I've enjoyed much better cellular service in other countries.

It has to be regulated. And heavily. But regulating the cell phone companies wont do anything. At this point vertical integration is the issue. Handset exclusivity is ok, but handset portability is the problem that should be addressed now. Its difficult however because then you have the FCC saying to phone manufacturers that they need to build phones that will work on most/all US carriers, which will drive up costs - especially if the FCC gets its way and frees up 300MHz of spectrum and one phone would have to support all those bands (software defined radios would have to get here quickly).

If I was czar, I'd reconstruct the whole thing. I'd take the copper off all the telco's hands, in return for reconstructing the entire wireless network as one system. All with one protocol. You know, like telephones. Like the Internet. One network, many companies selling price and service and devices. I'd make texting charges illegal. It's just a short phone call.

Meanwhile, I'd do my best to further the vision of connectivity for everything everywhere.

And that's why I bought my iPhone 3G last year for $99 (on contract), then two months later broke my contract, paid the $175 ETF and stuck an AT&T GoPhone SIM card in it. Sure, I can't use AT&T's data network, but I don't need it. Everywhere I go has WiFi, and if I need driving directions, I get them before I leave the house. I spend an average of $40 a month for minutes and a texting package. Works great.

Its not so much a question of whether something needs to be done but what to be done. Clearly the system isn't completely broken and for some people it works really well (i suppose thats debatable). Would a forced separation of providers and backend (towers and data pipes, etc.) be the way to move the industry forward. This way the backend providers would compete with each other driving up the quality of the towers and whatnot and the cell companies would then have to make deals with consumers and backend providers. Sort of creating a network neutrality kind of thing. The backend people would have to provide a reasonable deal to any cell company. I could see this also leading to a proliferation of different contract types where people who just want data to do voip could potentially do that.

Of course Sprint thinks something needs to be done, them and TMobile are losing!!!!On a more serious note though, these prices are getting out of hand. I am not sure what can really be done regulatory wise. If they were to split up Verizon, what would happen to the customers? Would I no longer have Verizon 3G if I went on vacation to Florida? The only way I could see dividing one of these kinds of companies would be to say "Ok, you guys are now financially separate, but you share the same network until you start rolling out new tech." In Verizon's case, let them split the 4G cities, and have the top of the chain keep Verizon, and the next in command gets the new company.

IMHO, an even better solution would be to split up Verizon (and AT&T, and the others) into two companies, one of which owns and operates the infrastructure, and the other of which pays a simple rate for the use of the towers, and resells the service to consumers. The former company would, of course, be required to sell access to anyone who wanted to start up a wireless service provider, and be prohibited from discriminating against devices, protocols, or applications. With all that competition using the same infrastructure, it's highly likely that the monolithic subsidized phone, two-year contract model with its ridiculous text messaging fees and other problems that most of us are stuck with would find itself surrounded by all sorts of new, funky, idiosyncratic types of plans, with options like no contracts, or pay-as-you-go, or data only, or whatever else you can think of.

I'm holding tight for another few years until LTE passes the tipping point and all the handset makers target that for the latest and greatest. Once it becomes the 'standard' for wireless communications, slap these arrogant bastards upside the cell tower and make handset locking illegal. I'm torn between the tendencies to over and under regulate, but I think unlocked handsets will be more important to consumers and competition than anything else. Handsets are where the action is, whereas the carriers have proven that they're incapable of serving consumer needs for anything beyond the dumb pipe. Everything else they've touched on the network service end (pricy ringtones, expensive text messages, directory lookups, music services, and so forth) has turned into a stinking, fly-ridden pile of shit.

It's really unfortunate that Google couldn't/didn't make their carrier-free Nexus retail plan work. It's hard to say how much was on behalf of the carrier's entrenched subsidy model, or lack of marketing, or lack of human-based tech support, or whatever. But I hope that model gets another chance, from other handset makers. And consumers need to wise up and realize that the existing subsidy model is not in their best long-term interests.

The quote about the US market being the world envy is indeed laughable. Sprint is definitely behind and part of the reason, I think, is that in the last year and a half most of the phones they have added have been slight variants of the same thing, but none of them very special. I'm not sure if a full on nationalization of the wireless industry would be the answer. Given how many people are already shouting about big government, adding yet another industry to their purview would likely get some major screaming going

I think if anything, possibly regulate what everyone is building towards. Right now we have some companies CDMA, most GSM. Some use SIM cards, some don't. Some are building toward LTE, some toward WiMax. Maybe the government needs to step in and say "Within 3 years everyone needs to be on X network. All phones will be compatible between different vendors and these ridiculous ETFs will be reduced to $100." That would really people to be able to use any phone on any network and not worry about being stuck with terrible service. Doesn't really improve things for rural folks who only have 1 carrier (if any), but some people in other threads seem to think anyone who is rural can move to the city or suck it.

Data plans also need to come down in price. I'm on the Sprint Everything Data family plan and it goes from $70 for an individual to $130 for 2 phones. It's nuts. Sure they jump the minutes, but with texting and given the fact that cell phone calls don't use up minutes and neither do evening and weekend, I could get by with say 5 or 600 minutes of talk time. That's with 3 phones even. There is no lower family plan tho.

The FCC should ban opaque handset subsidies. They are the most important cause of obscenely expensive data plans and excessive ETFs.

The carriers should be required to sell all plans independently of any handset. If a device is bundled, it should be treated like a payment plan with its real cost printed in ads. For example: "Voice and data $50/month, xPhone $25/month for first 24 months (total cost of device $600)".

That's not unreasonable at all. Some European countries have even stricter regulations on how mobile subscriptions and devices can be sold together (including complete bans on such bundling).

And there's that little matter of collusion when all major carriers simultaneously doubled their a la cart text messaging from $.10 to $.20. For something that's essentially free for them to provide, it's odd that all of them did this at exactly the same time.

...I could get by with say 5 or 600 minutes of talk time. That's with 3 phones even. There is no lower family plan tho.

For myself, I could probably get by with 60 minutes a month, to be honest. But no, the minimum plan is 450 minutes, which is $40 (plus data, plus texts, plus taxes, plus mysterious fees of all sorts), and you'll like it! So there!

I'm about to switch to Verizon and dump my texting plan. Google Voice pushes texts over data now, so that's $20 a month I can avoid paying.

If/when Google combines Google Voice with Gizmo5 (or that other one they recently purchased), I'll dump voice too and use only a data pipe.

Which, I believe, is how it should be. I should be able to use any data connection to talk from anywhere. Just like my ISP, all I want is a raw, open data connection; I'll handle the rest. Which, in essence, is what various people were talking about (split the providers into network providers and service providers).

I'm about to switch to Verizon and dump my texting plan. Google Voice pushes texts over data now, so that's $20 a month I can avoid paying.

If/when Google combines Google Voice with Gizmo5 (or that other one they recently purchased), I'll dump voice too and use only a data pipe.

Which, I believe, is how it should be. I should be able to use any data connection to talk from anywhere. Just like my ISP, all I want is a raw, open data connection; I'll handle the rest. Which, in essence, is what various people were talking about (split the providers into network providers and service providers).

That's exactly what I want, too. It's the only way that makes sense. Every day I'm paying for anything other than just a data plan to use as I please is a day I'm getting ripped off.

Of course we should....who the HELL trusts AT&T to do what is best for the consumer? Or hell, who trusts AT&T to NOT screw the customer? Anyone? At all?

AT&T and other companies want to rape us as much as possible and don't care what we do as long as we don't form some sort of major revolt that gets national attention. Hell, even when we do bring major attention to some issue, AT&T and others will issue some fake letter stating that what they did was "making for a better consumer experience" even though they are simply charging us more....which makes zero sense

The reason I don't have a smartphone today is because I don't want to commit to any carrier.

If I pick AT&T, sounds like I'm fucked in any major city.If I pick Tmobile, I'm not gonna get 3G as often.If I pick Verizon.. well I haven't researched that one. They can't truly gimp Android, right?If I pick Sprint, I've got to commit to their Wimax rollout (Considering an Evo, but if Wimax is a bust then the phone is kind of a waste)

I'd gladly drop $500 on an out-of-contract smartphone if I could move carriers down the road as the situation changes. Dropping in a temporary SIM during international travel would be great too.

The FCC might take a look at its own practices, of licensing spectrum directly to those who have a huge incentive to lock it up. Makes it nearly impossible for competitive entrants. Spectrum should be licensed to intermediaries who sell it on a non-discriminatory basis to all comers, and who have no incentive to favor Verizon, AT&T or anybody else.

That move alone would hugely reduce the carriers' ability to gouge you, because somebody else could provide you a comparable service for a bit less profit (i.e., gouge you less), and then the next entrant could ditto. All without having to front the billions for spectrum that they mightn't be able to sell to consumers.

The majors probably pay a bit extra to Uncle Sam for spectrum under these practices, but it allows them to mark it up many-fold. Elementary economics.

I'd love to turn cellular providers into dumb pipes. I'd love to turn telco's and cable companies into dumb pipes. I'd love it if they competed on quality of service and speed instead of walling off their gardens to prevent competition. The day I can buy a phone, and then a plan, based on my needs, instead of picking my provider pretty much on the phone I want to buy, is the day I'll be happy.

Until then it's just an anti-competitive oligarchy, which uses the FCC as a shield to prevent anyone from noticing how they collude to drive prices ever upwards. No lie, I once had a Wireless company threaten me with an EFT even though I wasn't under contract and they hadn't subsidized my phone. We've got to be able to come up with something better.

It's easy. Government builds the network and rest offer services in it. That will be most efficient system plus it's much easier to start offering service compared to now when you need to build towers and steal a licence from someone.

That description extends beyond the cell phone industry and into the free market entirely, which is reason enough for the Government to back-off. When will these bureaucrats abandon their fool's dream of a perfection via committee and regulation, and realize most of the market's ills are a result of their "lever" pulling behind the curtain?

That description extends beyond the cell phone industry and into the free market entirely, which is reason enough for the Government to back-off. When will these bureaucrats abandon their fool's dream of a perfection via committee and regulation, and realize most of the market's ills are a result of their "lever" pulling behind the curtain?

Yeah, 'cause Enron and Goldman Sachs and AIG did us so many favors when the levers were removed...

American Wireless Industry says American Wireless Industry is the best in the world; recommends not regulating American Wireless Industry. News at Eleven.

Quote:

If they were to split up Verizon, what would happen to the customers?

The posters above have got it right: Split them between infrastructure and services. Have one company (e.g. Verizon Internet) provide strictly internet access, and be prohibited by law from doing anything other than selling bulk internet bandwidth to end users. No handsets, no phone service, just data. Then you get your phone service, text messaging service, etc. over the internet from any of a thousand competitors from Verizon Telcom to Skype to Google, on a device you bought from Newegg or the Apple Store.

It really is the only thing that makes sense: Anything else stinks of the anticompetitive bundling of products and services that can be provided by anyone, with wireless which can only be provided by someone who has a multibillion dollar wireless spectrum license and has built a million towers all over the place.

I just want to point something out to the telcos: You don't actually have to be afraid of being split between infrastructure and services. The services aren't actually worth anything. On the internet, VOIP, IM, etc. is all "free" -- it comes with the connection. Anyone can provide them without charging for them because they're point to point, so as long as both endpoints have connections, the cost of the services is the cost of the connections.

Which is why the ISPs shouldn't be afraid of this: They're the ones selling the thing that has value. Telling them that they can't bundle services because it annihilates any competition for services shouldn't be any bother -- just charge as high a monthly rate for the data plan as you would have for the data + text + voice plan, let people get text and voice for free from whoever they want, and keep making the same amount of money.

The thing people are afraid of isn't ISPs making a profit, it's ISPs affecting the winners and losers in other markets. YouTube and Vuze provide different content than does Comcast Cable TV, and we don't want Comcast to have the ability and incentive to thwart those competitors. Ditto Skype and cellular telephony. It isn't that people aren't willing to pay the ISP the amount of money they're currently paying, it's that people don't want to lose unmolested access to YouTube, Vuze, Skype, WoW, etc. just because the ISP is afraid to compete with them.

So, to reiterate: ISPs, stop "selling" services. Just price the data plan at a point that lets you make a reasonable profit without receiving any money from services, and leave the services to the thousand competitors willing to offer them for free. Yes, that means you can't nickel and dime everybody for text messages. So charge a higher monthly fee, whatever. If it all comes out in the wash and the end result is that you get the same amount of our money but we get unlocked handsets and network neutrality, everybody is happy.

Yes, regulate the wireless services too. If they do not regulate these services along with other ISP's such as cable, there will not be the needed control over them to prevent from forming a monopoly. Places like Google will get into the act and overshadow them for service, heck, Google is already launching TV and movie streaming sevices over the 'net which will eventually compete with the streaming services already offered by cable and the movie-focused industry (I predicted Google doing this a year ago, everyone called me crazy that it would not happen, yet here we are).

I think there are really only a few things that need to be done to fix the market.

1. Untether the handsets. If it's cheap to do it with a software radio control, do it that way. If it's cheaper to physically swap out antenna chips, then do that. But something needs to be done to fix it. The most radical solution, which I'm not advocating, would be to nationalize the infrastructure so that everybody can have the same radio configuration.

2. Fix ETFs. Itemize the plan charges and the monthly payments on the handset separately, then charge an ETF equal to the remaining amount owed on the handset payments if necessary.

3. Make finer-grained plan options. I have a family plan with two phones on it from AT&T that gets 550 minutes. Last month we used 18 minutes. We have 5,000 rollover minutes that we are never going to eat into. If I could order 100 minutes a month I would, and I would save a lot of money. Instead, I'm forced to pay for a lot of minutes I will never use.

* Remove the FCC's control on the radio spectrum. This makes it impossible for new companies to compete without getting permission from the government. It limits competition both in the existing frequencies / technologies but also in the introduction of new ones. Use classic homesteading principles as they did originally for radio to deal with any conflicts.

* Back off of intellectual property laws that allow businesses to sue individuals for using their phones as they see fit outside of any explicit contract clauses.

* Remove all anti-competitive regulations. True anti-competitive regulations are any that normalize the products. If it limits the businesses ability to change the product in some way (outside fraud, theft, etc) then it should be removed from the law books to increase customer choice.

That description extends beyond the cell phone industry and into the free market entirely, which is reason enough for the Government to back-off. When will these bureaucrats abandon their fool's dream of a perfection via committee and regulation, and realize most of the market's ills are a result of their "lever" pulling behind the curtain?

Yeah, 'cause Enron and Goldman Sachs and AIG did us so many favors when the levers were removed...

Yeah, 'cause Enron and Goldman Sachs and AIG were/are not heavily regulated and in bed with government. Yeah, 'cause the Federal Reserve, GSEs and Congress didn't / doesn't inflate the financial markets with low interest rates and bad laws that create huge malinvestments and moral hazards. Yeah, 'cause none of this was predicted and warned against by free market economics like those in the Austrian school and Ron Paul in the House. Yeah, 'cause bailouts, subsidies, anti-consumer regulation, forced cartels, limited liability, central banks, fiat money, etc. are all totally free market creations.

They need to eliminate the 'friends and family' network-type plans as anti-competitive. Make incoming calls free. And force them to offer a a la carte data plan for a gov't set minimum, like they do with basic cable service.